Merck & Company (NYSE:MRK) closed last week at a valuation of $86.91. This was after opening the week at $88.32 and touching a high of $89.49. Merck faces notable resistance at $90. This resistance is traced back to 2020. Our analysis considers that the company will shed value to find support at $75. Traders are highly advised to take a profit by selling now and buying back when the stock hits $75.
The company rallied for more than six weeks before hitting the current resistance level. The year range is between $69.46 and $91.40. The price-sales ratio stands at 4.53 while the price to book is at 5.75. Forward PE is 12.08, and the PEG ratio is at 1.41. The ratios point to a stock trading close to fair value.
There are two implications of the observation above. First, the investor who is interested in the long-term fundamental performance of the stock can hold at the price. The investor would enjoy growth in value from ongoing drug developments as signaled by recent FDA approvals.
Secondly, a trader would have a different approach to the stock. This means selling now and buying back at a support level. The trader recognizes both the value and pricing of the stock. The response, therefore, depends on each investors’ style.
Merck retreats from the resistance level of $90
Source – TradingView
With an RSI of 64, Merck is heading for the overbought region. However, the clearest signal for a selloff is the RSI turning down. Note that the stock has not hit RSI 70 since December 2019. The pattern is expected to continue. Therefore, the current downturn in RSI is a pointer that the stock has started a price correction.
Summary
Merck & Company is retreating from the resistance level of $90. The support level is $75. Selling now is strongly recommended.
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